Many farmers cannot presently afford to finance forestry projects on their land given the expense of forestry set up costs and the long wait for revenues. On the other hand, many urban New Zealanders have a real affinity with the land and would enjoy involvement in forestry projects as a tangible long term superannuation scheme.

Joint Venture Agreements provide a simple method for investors to partake in forestry ventures including large forestry investments over areas of farm land. For the farmer, joint ventures provide the opportunity to finance forestry projects on their own land.

Joint Venture Agreements are empowered by remarkably simple two page piece of legislation called the Forestry Rights Registration Act 1983.

The conditions of a joint venture agreement are mutually established by the parties involved, subject to the basic requirements of the act.

Costs of preparation and the registration of a Joint Venture agreement against a title can be very low for small straight forward projects. Survey costs are not involved as the land in question may be defined by a simple sketchplan on a cadastral map or on an aerial photograph.

While legal costs do not have to be incurred, it would be wise for both parties to check out the draft joint venture agreement with their lawyers to ensure their interests are adequately covered. The forestry clauses in the basic document should be drafted by a forestry consultant.

A typical joint venture arrangement has the following features:

1. Investor and farmer inputs are evaluated and the projected net income is apportioned in accordance to the value of their contributions.

2. Farmer contributions to the joint ventures usually are:

Land (rental value)

Capital improvements to land, e.g. fencing, tracking, apportioned between the farm and joint venture.

Custodial care, fire notices, fence maintenance, weed control, etc.

Value of management contributions, e.g. pest control, release spraying etc.

Any capital contributions to the joint venture.

Rates, levies, overheads, fire insurance.

3. Investor contribution:

Capital contributions for establishment and tending of the crop, land preparation tree stocks planting release spraying thinning and pruning

Typically the farmers share based on the land, improvements, and custodial responsibility is about 25 - 40% and the investors share 60 - 75%. Some farmers like to top up their share to around 50% by contributions of money and or work.

The rate of return (IRR) to the investor and the farmer on the value of their contributions is equal if the agreement specifies that nett income is apportioned on the basis of inputs.

In some joint ventures farmers could increase the value of their stake by offering access rights to a cottage or a camping and recreation area, that is capitalising on recreational opportunities.

Any conditions to protect the interest of either party can be included in the agreement e.g. in relation to fire, chemicals, fencing, stock management.

By mutual consent of all parties a joint venture agreement can be amended or added to.

The investor's interest is saleable, but is usually subject to the farmer having the first option to buy that interest or having some veto over suitability of purchasers.

Sale of the land has no effect on the investor's position as the joint venture is registered against the land title. The new farmer takes on the privileges and the responsibilities, and the sale price should reflect the value of the joint value of project at the time of sale.

Similarly, the farmer can retain rights to the trees when he sells the property.

The process of preparing and filing a joint venture agreement is summarised as follows.

Forest plan
A brief forest plan is needed to outline what the project entails and the projected costs of each activity.

Planning permission
In some areas the district council may require planning approval for forestry projects. A forest plan is often required as a condition of planning approval for hill and high country properties. For pastoral lease land approval of the lessee is required (Landcorp).

Joint venture agreement
The joint venture agreement should be prepared on the basis of activities and costings identified in the forest plan. It is important the forest regimes are realistic and carefully costed, i.e. the forest plan and joint venture agreement should have input from a competent forestry consultant.

A full checklist of activities and costs should be drawn up for each year of the project. The checklist would typically involve:

CONTRIBUTIONS
FARMER	INVESTOR
Set up costs
Forest plan Joint venture agreement Planning permission Registration costs Value of improvements (fencing/roading)	Forest plan Joint venture agreement
Land overhead costs
Forest fire insurance Land rental (usually 70% LEI) Rates and levies Noxious weed & animal control Fencing & track maintenance	Forest fire insurance
Land preparation costs
Additional fire ponds, roading, fencing Herbicide treatment, burning Ripping, cultivation	Additional fire ponds, roading, fencing Herbicide treatment, burning Ripping, cultivation Establishment costs Seedlings purchase, transport Planting Release spraying, fertilising Tending 1, 2 or 3 prunings Costs of 1 or 2 thinnings
Other matters
Custodial care, trespass control Removal of stock, reporting wild animal or forest health problems Erection of fire notices Forest grazing management and income

A joint venture agreement should include the following matters:
The joint venture agreement has to have a term, i.e. date of inception, date of completion. The term should be sufficient to ensure the completion of one full rotation plus say 5 years, e.g. 30/35 years for radiata, 45/50 years for Corsican or Douglas fir.

Any activities which are to be undertaken by the farmer (or investor) in lieu of capital contributions to allow hire of professional contractors should be clearly identified, and the responsibilities and the value of the work recorded.

Default clauses should protect the project against non performance e.g. work not done on schedule or substandard work. Only professionally competent and experienced contractors should be employed to do the forestry activities.

Forest grazing management requirements should be clearly specified to protect the trees from stock damage.

Full forest fire insurance is essential and an inexpensive safeguard.

Profits from timber sales are best apportioned on the basis of each party's projected contributions, calculated by compounding the schedule costs through the projected timber sale date.

Assignment (sale) rights are normally specified as being the first option at the average of two independent forest valuer's prices to the other partner.

Sale of timber should be through a professional forest timber sale agent, and should be by advertisement and tender.

Any clause of the agreement can be altered by amendments and additions to the joint venture document, agreed and signed by all parties.

Rights of access to the forest area and right of ways to the forest area for the investor partner(s) and their agents, and for timber extraction, should be identified on the photo plan.

Recreational rights to the forest investor may be an additional value to the forest investor.

Arbitration clauses and a disputes procedure need to be provided in the agreement.

Any contributions by way of labour, by either the farmer or the investor, need to be specified at an hourly rate.

The joint venture will also require:

An aerial photo marked to show the forest boundary as the simplest way of defining the forest area to meet the "Class C" survey requirement for registration purposes.

A Certificate of Title has to be presented with the joint venture agreement to the District Land Registrar.

Written permission of any mortgagees to the joint venture to be provided to the District Land Registrar.

Further information and advice
For information about joint venture and other investment vehicles, contact Ministry of Forestry in your area.